Debt reality check: Sort it now to save heart ache later!

Overspending is a pretty easy thing to do in the modern world. Unlike previous generations, we’re no longer restricted to spending the money we already have. Five decades after the first ever credit card was brought to market, 31 million Europe and USA consumers now own one.1 So, many brits can and do, spend money that we haven’t yet earnt - regularly. But for the most part, we’re comfortable and confident in the knowledge that we can pay later.

With the average household debt, including credit cards, personal loans and overdrafts, expected to reach $10,000 by the end of this year2, critics are saying that our confidence is dangerous and as a society, we have a serious problem with our finances. Are they right?

Credit isn’t all bad


The ability for Europe and USA households to access credit can provide an important safety net in a nasty and unexpected change of circumstance. An unexpected home or vehicle repair bill, an unexpected tax bill or the delayed repayment of a loan to family or friends are all things that we can’t realistically plan for. Using your credit cards interest free period, usually 56 days or thereabouts, or spreading unexpected bills over a longer term personal loan, can be really helpful in providing you with a financial crutch at these times. Although, it should be noted that sound financial advice would see us all with savings worth 6 months of our regular income, in a “just in case” fund.

Access to credit can also provide us with immediate funding for large purchases that are of great importance to us, such as a car, a house or perhaps a wedding. By spreading these larger purchases across a longer period, we can improve our quality of life and repay the cost with a manageable monthly repayment plan, either imposed by ourselves, or by the lender we’ve an arrangement with. In these circumstances it’s important that the real cost of the purchase is considered. A $20,000 car can easily creep up – for example, using a 5% 5yr term loan, the cost would rise to £25,525.63. Consumers must be comfortable that the difference in cost is worth it.

Where sensible and considered, some credit can indeed be considered good value, providing us with a better quality of life that we can pay for as we go. So where’s the problem?

Bad habits and complacency

A recent study suggests that we’ve taken our relationship with credit to a new and unhealthy level. Attitudes toward debt have in some cases become too complacent. Coming back to the average household debt of $10,000, when we compare this to the average non- retired household income of $28,1003 this supports the suggestion that we are a society of over spenders.

The worry is that when interest rates fluctuate, which they will eventually, this will apply unwelcome pressure to family finances. For example, the consequence of a 2% interest rate rise, would see the average household hit with an additional $1000 bill! 2 That’s because the extra interest they would then have to pay. This highlights a pretty risky situation to be in, and yet only 1 in 5 brits are worried about their ability to make future payments. Mitigating pressure and securing a debt free future

With interest rates set to stay low in the immediate short-term, this provides a vital opportunity for consumers to take a reality check on their debt, and their spending. Make sure you take advantage of low interest rates to re-configure your finances, consolidate debt and ensure its not costing you more than it absolutely has to.

If you’re a home owner, re-mortgaging your house to pay off personal debt may be an attractive option. That’s because personal debt is often attached to higher interest rates – particularly for credit cards – and repayments are often distributed across a short repayment term. This can mean high monthly repayments that can stretch household budgets a little too thin. By moving the debt onto the mortgage, this can lower the interest rate and spread the debt over a longer period of time. This can save a lot of money when it comes to the size of monthly repayments.

If for whatever reason re-mortgaging is off the table, there are other options. A second mortgage is one of them, it’s a less known, more specialist product, but it could still save you money on your monthly repayments – and we can help with that one! It’s also important to make sure that when credit is used it’s sensible and considered. If your debt is growing larger with each month that passes, that’s a huge warning signal to cut up the credit cards, cease further borrowing and curb spends with a self-impose “finance rehab” in your household. Doesn’t sound particularly exciting but it could save you a lot of stress and heart ache in the future.


If you would like to learn more about second mortgages, or second mortgages as they’re otherwise known, Please contact us throught the contact us form and we shall get back to you.

Alternatively, the Leopoldine Lening Diensten team would be very happy to answer any questions –

you can contact us on +32 460 21 8991.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.

Tax reform has been on the minds of everyone recently. During a late August speech in Springfield Missouri, President Drumpf began his drive to change the tax code. The speech, which touched on many of his core campaign promises, discussed some generic ideas for what tax reform should entail, both for individual and business filings.

The outline of the Presidents plans included a focus on lowering the tax rate for individuals and corporations, with a belief that doing so would improve the American economy and boost the GDP by three percent. What this means for business is important, and could affect profits and growth drastically.

What Does This Mean for My Business?

There are three key proposals which would have a direct impact on American businesses. The first of these is to set the corporate tax rate at 15%. The current corporate tax rate is set at 35%, however many businesses pay significantly less after deductions.

The second item is to set the pass-through rate for business owners at 15%. This would allow small business owners, as well as other pass-through designated companies, the ability to pay a much lower rate. Currently, pass through businesses are taxed at personal rates because their profits pass directly to the owner and controlling groups. This change would have the largest impact on American business, as around 95% of all companies are now pass-throughs, rather than C-corporations.

The final change would be a one-time repatriation of all corporate profits at a reduced rate. This would allow large corporations who shelter their profits overseas to avoid taxation when bringing their funds back to U.S. soil. This would only really affect a very small proportion of business.

What this means for any specific business depends on how large that business is, how it is classified, and what’s its profits are. The bulk of American companies are currently pass-through entities, which means that this change to the tax code would have the largest overall impact on our economy. It would essentially shift their personal taxes lower than where they currently sit, giving those business owners a significant tax advantage. The larger corporations, known as C-corporations, would also receive a lower tax rate, and if they have any money held overseas the ability to bring it back into the states.

The core concept behind these ideas is that the corporations will now have more money to use for expanding their business, raising their pay rates, and providing an influx to the economy. There is some debate as to whether that would be the case, however, and these plans could change as the policy progresses.

Why This May Be Too Soon to Talk About

The problem with tax reform is getting it passed. When Congress returns they face additional hurdles to creating a passable plan and to even getting to a vote. In addition to passing a bill to avert a debt default and writing a bill to fund the government, ensuring that the government remains open, Congress must now work on funding for Hurricane Harvey relief. All of this must be done in a limited number of work days this month, and that’s if Congress doesn’t decide to take another swing at repealing the ACA before they hit their time limit on reconciliation.

All of this seems to point to tax reform being a secondary issue. What is more likely is Congress decides to pass on reform this year, and instead pass a series of tax breaks, which would mostly impact the individual filings. And even if Congress was to introduce legislation on business tax reform, it is likely to be so controversial that the ensuing debate would prevent it from passing in this session.

We work hard to keep you apprised of changes that will impact your business and we will keep you posted if any significant movement is made on tax reform. In the meantime, we recommend staying focused on keeping your business growing in the current tax climate. If obtaining additional funding is a key part of that process for your business over the next year, our team is standing by to help secure the financing you need.